McKesson Paid $226 Million in VA Spending Now Under Review

Veterans Affairs Secretary Eric Shinseki has been asked to provide written records of meetings between VA officials and pharmaceutical suppliers as well as the names of VA leaders who approved decisions to buy drugs without contracts by November 10. Photo: Joshua Robert/Bloomberg

Dec. 15 (Bloomberg) -- The U.S. Veterans Affairs department
changed its procedures after identifying “issues” with the way
$226 million was spent last year in a contract with drug
distributor McKesson Corp., an agency spokesman said.

Agency officials have since banned the use of the contract
to buy “open market” goods, according to a Nov. 8 memo to
purchasing officials. The VA allegedly made such buys without
any contracts, potentially putting patients at risk of receiving
ineffective or unsafe medicine, according to a letter to Veteran
Affairs Secretary Eric Shinseki from U.S. Representative Joe
Donnelly.

The alleged use of the contract for unauthorized purchases
is the subject of an investigation by Congress and the agency’s
inspector general. McKesson is competing for the next version of
the contract, which could be worth as much as $30 billion.

New Drug Contract

The new contract to supply the VA with pharmaceuticals is
scheduled to be awarded by March and will “instill increased
accountability and address pricing concerns to ensure that VA
patients continue to receive the medications they need while
also safeguarding taxpayer dollars,” Taylor, the VA spokesman,
said.

Taylor said $226 million was spent on open market purchases
last year, out of $4 billion spent with McKesson. He declined to
explain what open market purchases means in the context of the
VA memo, or say if there were contracts for those orders. The
term typically refers to a purchase for which there is no pre-existing contract, said Larry Allen, president of Allen Federal
Business Partners, a procurement consulting firm based in
Arlington, Virginia.

All the items were received and paid for, and the VA
requires suppliers to adhere to Food and Drug Administration
standards, Taylor said.

In an Oct. 28 letter Donnelly, the top Democrat on the
House Veterans’ Affairs Committee’s panel on oversight and
investigations, asked Shinseki to explain how the agency could
ensure drugs purchased without contracts met federal safety and
efficacy standards and were bought at reasonable prices. Such
unauthorized buying may have involved “billions of dollars” in
spending over several years, the Indiana lawmaker wrote.

VA Investigation

The Veterans Affairs inspector general’s office is
investigating the agency’s non-contract purchases through the
McKesson agreement after meeting with Donnelly, said Maureen
Regan, the counselor to Inspector General George Opfer.

The office also will review the agency’s use of a “fast
pay” system, Regan said. That system provides discounts to the
VA when payments are made to McKesson, the agency’s primary
pharmaceutical supplier, within 48 hours of receiving the
invoice.

Representative Bill Johnson, an Ohio Republican who leads
the oversight and investigations subcommittee, said yesterday
that he is “aware of the allegations.”

“There is already an ongoing investigation and we will
take the appropriate measures, but at this time, I cannot
provide further details,” Johnson said in an e-mail.

Buying drugs without a contract puts veterans at risk of
receiving tainted or ineffective medicine because there’s no
guarantee where the drugs came from or what ingredients were
used in production, said Richard Weidman, the executive director
for policy and government affairs for the Vietnam Veterans of
America.

‘Chain of Custody’

“If you can’t show chain of custody, you can’t guarantee
the elements in a drug are what you say they are,” Weidman
said. “That’s how people have wound up dying.”

McKesson has been the VA’s sole medicine supplier for
veterans’ hospitals and the department’s mail-order pharmacies
since 2004.

Donnelly’s letter doesn’t accuse McKesson of wrongdoing.
The letter sought information about whether supplies in addition
to pharmaceuticals were purchased without a contract. It didn’t
elaborate on the types of supplies.

McKesson’s contract expires in May, and the San Francisco-based medical supplier is competing with at least two companies,
Cardinal Health Inc. and AmerisourceBergen Corp., to keep the
business in a contract valued at as much as $30 billion.

Kris Fortner, a McKesson spokesman, declined to comment on
the investigation but said McKesson is in compliance with the
current VA contract. Barbara Brungess, a spokeswoman for
AmerisourceBergen, declined to comment. Cardinal Health
spokeswoman Debbie Mitchell didn’t respond to requests for
comment.